Fitch Ratings is optimistic about Ghana’s banking sector, citing strong profits and improved solvency following years of turbulence caused by the government’s Domestic Debt Exchange Programme (DDEP).

Under the DDEP, introduced in December 2022, Ghana agreed to swap about $4bn of domestic debt, helping convince the IMF about Ghana’s resolve to restructure its loans. But it inflicted heavy losses on banks, leaving many grappling to meet solvency requirements.

However, robust earnings in 2023 and 2024, largely driven by high yields on Treasury bills, have laid the foundation for bank sector’s recovery, Fitch said in its latest report.

“High profits are driving a recovery in the banking sector’s capitalisation after the large losses imposed by Ghana’s DDEP,” the agency noted, predicting that most banks will meet capital compliance by the end of 2025, even as regulatory forbearance expires.

Fitch noted that banks’ reliance on domestic deposits, as opposed to external debt, has shielded them from liquidity pressures affecting other markets. While foreign-currency liquidity coverage remains strong, the local-currency liquidity outlook depends heavily on Treasury bill yields.

The ongoing restructuring of Ghana’s sovereign external debt has been another stabilising factor. The October 2024 Eurobond exchange bolstered access to international finance and alleviated local currency liquidity strains, according to Fitch.

This progress prompted the agency to upgrade Ghana’s Long-Term Local-Currency Issuer Default Rating to ‘CCC+’ from ‘CCC’. Fitch forecasts further macroeconomic stabilisation in 2025, with GDP growth expected to rise, inflation projected to decline, and the exchange rate likely to stabilise.

While the sector shows signs of strength, challenges persist. The non-performing loan (NPL) ratio climbed to 22.7% in October 2024 from 18.3% a year earlier, the Bank of Ghana (BoG) reported in its November 2024 Monetary Policy Committee (MPC) statement.

Fitch projects that high yields on government securities will continue to strengthen banks’ capital positions in 2025, setting the stage for sustained recovery. However, adherence to strict credit standards and effective recapitalisation will be critical to addressing lingering vulnerabilities.